Going debt free

When you`re in debt, your money isn`t your own. Every month, you know a portion of your money will go to someone else - until your debt is paid off and you`re officially debt free.

Some debts, like mortgages, are just part of life. For most of us, a mortgage is the only way we can afford to buy property. But other debts, like credit card debts, can often be avoided with some careful planning and the right approach to budgeting. Even more irritating, many people find there`s little to show for them - someone with a mortgage will have a house to show for it, but many people find their smaller debts come from buying a hundred smaller things. Often, they can`t even remember running up large parts of those debts, but that doesn`t mean they can forget the payments.

But debts aren`t just frustrating. They can be dangerous. A fall in income or rise in expenses can easily turn a manageable monthly payment into a huge monthly challenge - the sort of challenge that can lead to serious debt problems.

Could you go debt free?

Pay off your debts and everything you earn will be yours to spend as you see fit (once you`ve paid for your mortgage/rent, utility bills and other essential expenses).

But how do you actually become debt free?

• It starts with a budget: write down everything you spend in a month so you can see where you`re wasting money that could go towards your debt. It`s a good idea to add up all the potential savings - it`s easier to `tighten your belt` when you can see how quickly you could reduce your debts. Remember: every pound you pay off is a pound that won`t be accruing interest any more.
• Once you`ve accounted for all your essential expenses, including all your debt repayments, put any `spare` money towards the debt that charges the highest interest (check first to make sure you won`t be charged for overpaying your debt like this).
• Once that debt is gone, overpay the one with the next-highest interest rate, until they`re all gone.

You may find it helps to celebrate `milestones`. You could award yourself a treat when you clear a debt, for example, or when you pay a certain amount off your total.

And remember: the sooner you do all this, the less you`ll pay in interest. After all, it`ll cost you £950 to carry £5,000 of debt on a 19% credit card for just one year...

Debt advice - a vital part of going debt free. Click here.

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